Real Estate & QBI Deduction

On Friday, January 20, 2019 the IRS issued final regulations as well as some additional guidance in regard to the QBI deduction for 2018. Much of the final regulations simply make the temporary regulations from August 8, 2018 permanent. However, there is some additional guidance for persons involved in real estate (information on real estate & QBI deduction) below.  We've also provided some checklists below that can help you determine if you qualify for the Qualified Business Income Deduction (QBID).

Rental Activities
Taxpayers can continue to apply the trade or business tests, which is the “regular, continuous, for profit” 3-part test of Code Section 162. However, in IRS Notice 2019-07 they also provided a safe harbor to qualify rental real estate activities for the QBI deduction that meet these three tests (applied separately to each property, or similarly at the taxpayer’s choice for all properties of the same type: residential or commercial):

1.      Maintain separate books and records for each rental activity;

2.      Perform at least 250 hours (or agent/employee or subcontractor)  of rental services for each year for each rental activity; and

3.      Maintain contemporaneous records, logs or similar documents showing time, description, dates and who performed the services.

We have 2 checklists below: first for real estate professionals; and second for clients claiming the safe harbor exemption for regular rentals. The safe harbor rules may be used by individuals and pass-through entities such as LLC’s. The tests apply until 2023.

Rental services that qualify include advertising; negotiating leases; verifying tenant applications; daily operation and maintenance; management; and supervision of employees and contractors.

Some rental activities are excluded from being able use the safe harbor including triple net lease activities and real estate used by the taxpayer as a residence (such as an Air BNB).

Finally, the taxpayer must include a signed statement with the return that they meet the requirements of this procedure.

Due Diligence Checklist for QBI Deduction-Real Estate Rental

Instructions: Meet either 1 of the 2 tests and taxpayer qualifies for QBID @ 10/31/18 rules

Real Estate Professional Test 1 YES NO
Does taxpayer spend at least 50% of total annual work hours in a real estate trade or business?
Does taxpayer have detailed time records to prove 50% test?
Are the records substantiated (written) and currently maintained?
Does the taxpayer spend at least 750 annual hours in the trade or business (not counting time as a W-2 employee unless >5% owner)
Does the taxpayer spend at least 500 annual hours on this specific property (may include spouse’s time)?
Does taxpayer have detailed time records to prove the 500 hour test?
Are the records substantiated (written) and currently maintained?
Summary: if all above answers are “Yes” the  taxpayer is a real estate professional and would generally be considered to meet the “regular, continuous, for-profit” rules to qualify for the QBI deduction
Conventional Rental IRS Notice 2019-07 Safe Harbor Test 2
On a regular basis does the taxpayer consult with advisors, negotiate and execute leases, consult with or act as property managers or personally maintain, manage or supervise the rental activity of the above property?
Does this activity continue throughout the year?
Does the taxpayer, employees, agents or independent contractor of the taxpayer spend at least 250 hours annually dealing with the advisors, managers or personally with tenants, repair or maintenance companies or on-site issues?
Does the taxpayer maintain contemporaneous written calendar time records to prove the above regular, continuous activity?

At Emerald Financial Partners, we are devoted to sifting through all of the rules and regulations to ensure you maximize your tax deductions.

 

Do You Qualify for the QBI?

Get help with your taxes today!

government shutdown tax

How Will The Government Shutdown Impact Taxes?

Free 15 Minute Quick Call

Emerald Financial Partners is offering 10 Free Quick-Call Consultations from 1/21/19 - 1/29/19 for Government Contractors & Businesses affected by the shutdown.

As of this writing, the federal government is still in a "partial shutdown", and things are starting to fray around the edges, even for those whose paychecks aren't being affected. Already, it's the longest government shutdown in history.  But, how will the government shutdown impact tax filings, refunds, and your returns?

By the time you read this, things could be back to "normal" but here's one thing that won't stop during this shutdown, however long it lasts: your taxes.

That's right, the IRS confirmed last week that they will remain operational during the shutdown, your taxes will STILL be due this year (including your estimated payments, if that applies to you), and the official start of tax filing begins on January 28th. But refunds might still be affected. We'll keep you posted.

So, here are the things you need to remember:

  1. Get your taxes prepared early.  The 2018 tax changes affect many of our individual and business clients. You may expect a refund this year, but you may be in for a surprise!  And, if you owe, you'll want to know that NOW so you can plan ahead if you have to write that check in April.
  2. The Government Shutdown likely won't dramatically impact tax return deadlines.  While the government determines how it will handle tax season during the shutdown, there likely won't be a big change in the tax deadlines, so there is absolutely no reason to wait.

Since there were a lot of changes made to the tax laws as part of the 2018 tax reform, you'll want to be sure to work with a professional tax advisor, like Emerald Financial Partners.

We provide individual tax preparation to help you get every deduction you’re entitled to and help you avoid audits and costly mistakes that can arise from DIY online software.

And, if you ever do need help with the IRS, we provide the support you need.  Can your online software do that?

Contact Emerald Financial Partners today to get started!

 

Schedule A Consultation

How the New Tax Law Changes Affect Individuals

Everyone seems to think that the new “postcard” return will make income tax preparation easier! Not true. The recurring theme in all of our continuing education classes this year has been the 20% increase in time we can expect to properly complete your return. Here are some of the major changes that have occurred.

Fewer People Will Get Refunds

The new Federal withholding tables were designed to lower your total tax bill for the year by giving you a bigger paycheck throughout the year. Unfortunately, they were not designed to give you a refund at year end, and for those of you that did not heed our warnings to change your withholding, your refund will be very small (if any) because you already received it in bits and pieces through larger paychecks throughout the year. One of our simple recommendations for 2019 is that all married individuals fill out a W-4 reflecting “single and zero” withholding.

Itemized Deductions Reduced Dramatically

The ability to itemize deductions has been dramatically decreased because the new law provides a much, much larger standard deduction. (You are allowed to deduct the greater of the two).

However, we still need to accumulate th

e information on your medical, tax, mortgage interest, charity and other deductions in order to apply the new rules, and to complete your state tax returns.

Home Equity & 2nd Mortgages

A major change has occurred on home equity lines and 2nd mortgages, most of which are now not deductible. In order to get your largest deduction, we will need to know much more information on these amounts than in the past such as amounts borrowed and use.

Other Tax Changes

Employee work related business expenses are no longer deductible on the Federal return, but we may still need
the information for your state return, and if you incur a lot of these types of expenses, you need to discuss the use of an accountable plan with your employer.

Most home-related energy efficiency credits are now expired, but an incredible 30% Federal credit still exists for
solar, wind and geothermal costs; and a $7,500 Federal credit for buying a fully electric car still applies through the end of 2018.

If you are retired, over age 70 ½, and have an IRA you must utilize the direct IRA to charity transfer tool to make charitable contributions. This simple trick can save you  hundreds of dollars in income tax.

Start a Health Savings Account Now

With over 50% of working Americans now covered by health savings insurance policies, it is of absolute importance that you start a health savings account, even with $50, and discuss some excellent tax-savings ideas with us for these tax-beneficial plans. And yes, you were still required to maintain health insurance for every member of your family for 2018 or face a potential penalty.

Future Tax Planning Is Key

Every year we are told “I pay too  much in taxes” or “I want some of the tax loopholes that rich people get”. We can answer both statements with one answer. Rich people get no more tax deductions or “loopholes” than anyone else, they just take advantage of what is there to keep their taxes at a low legal level. The single greatest tax “loophole” that they use, which few average people use to its limit is the
ability to defer nearly $20,000 into a 401-K if your  employer has one. If your employer has a 401-K and you are not putting the maximum deferral in it, there is no reason to even think about other tax planning ideas.

In the current tax era of greatly increased requirements to itemize deductions, a tax “bunching” strategy is absolutely mandatory. The “bunching strategy” recognizes that the best tax deductions are obtained by putting deductions in one year rather than spreading them amongst several years. For example, in years where your charitable contributions
are very low, hold off until the next year to catch up, then also pay the full amount of the next year’s contributions in the “catch up” year in order to double your chances of itemizing. Similarly, few Americans receive medical deductions anymore, but if you incur a large expense for say, the deductible on surgery, then try to do all of your other medical items in the same year, such as dental and vision exams, check-ups, etc.

Check into your employer’s handbook to see what employer provided fringe benefits are available. Taxpayer’s are often surprised at the available benefits, or at our explanation of what some benefits really mean.

Contact Emerald Financial Partners today! We are happy to meet with you throughout the year for tax planning, retirement and similar income tax related
issues, and sincerely appreciate your continued business each year.

Proactive Accountant

Is Your Accountant Proactive or Reactive?

When you own a business, there are many aspects of your business where you will want to be proactive vs. reactive.  For example, you may be proactive in managing your monthly cash flow, or you may be reactive when you run out of money!  Reactive business strategies are those that respond to some unanticipated event only after it occurs, while proactive strategies are designed to anticipate possible challenges.  At Emerald Financial Partners, we believe that the accounting of your business should always have a proactive element.  In this article, we’ll discuss some of the ways you can determine if your accountant is proactive or reactive, and why it matters.

By definition, the word proactive is, “creating or controlling a situation by causing something to happen rather than responding to it after it has happened.”  What does this all of this mean when it comes to accounting?

A reactive accountant addresses issues after they’ve happened and, in some cases, performs routine crisis management.  Most frequently, the accountant is dealing with numbers as a historical event; that is, the income and expenses that have already happened.  They respond to client’s needs, but only after something else has caused a concern to arise.  At tax time, they put numbers in boxes, perform calculations and provide a synopsis of what could be changed going forward, based on this history.  This is reactive accounting.

A proactive accountant, on the other hand, is working side by side with the owner, collaboratively to help them grow their business and position their business for profitability, tax savings, etc.  A proactive accountant addresses the client’s needs before they become urgent issues.

In 2018, the difference between a proactive accountant and a reactive accountant was never more obvious.  With all of the tax changes affecting small businesses, a proactive accountant, like Emerald Financial Partners, suggested a review with their clients to ensure that the business was pivoting to take advantage of new tax benefits before year end.  Some of the ideas we reviewed with our clients included:

  • Whether their business was categorized under the proper entity based on new tax laws,
  • Would be impacted by the new Qualified Business Income deduction,
  • That the salary calculations and requirements for business owners was being met

In addition, we meet with clients regularly and advise them on ways to grow their business.  Is your accountant:

  • Focused on real-time tax planning or just a once a year look-back?
  • Knowledgeable about your specific industry and/or challenges? Able to make recommendations, based on this knowledge, about ways to grow your business or increase profitability?
  • Providing ideas to save you taxes for the coming year?
  • Aware of your business goals and providing regular guidance and feedback to help you reach those goals?

As a business owner, the difference between a proactive or reactive accountant could mean the difference between success and failure.  Are you working with a proactive accountant?  If you’re not sure, contact Emerald Financial Partners and we’ll get you and your business on the right path.

Businesses: Get Accounting Advice Before 12/31

Each year, we help our business clients review their business and tax changes.  This year, though, it is more important than ever to meet with your accountant!

According to a recent article from ABC News, "it's particularly important [this year] because of the law enacted nearly a year ago.  Owners who don't have regular conversations with tax advisers may not understand the changes, many of which are significant and complex."

If you haven't met with your Accountant, or they haven't asked for a meeting with you, WHY?

Here are a couple questions you need to ask about:

  • The Small Business Deduction
  • Should You Incorporate?
  • Can You Deduct Entertainment?
  • Are There Cost Reductions for Your Industry or Small Business?

You can't correct some of these issues after 12/31/18, so it's really important to review and discuss the tax implications while there is still time to make needed changes.

If you need help, contact us today!

Women-Owned Small Business and Government Contracting

The US Small Business Administration has programs specifically designed to help women-owned businesses prepare their organizations to do business with the federal government.  As a matter of fact, the federal government’s goal is to award at least 5% of all federal contracting dollars to women-owned small businesses each year.  In this article, we’ll uncover some of the resources you can use to get your business qualified as a women-owned small businesses (WOSB).

Starting a Business

If you need help starting your business, Emerald Financial Partners has a Business Start-Up program that may be able to assist you with:

  • Discovery – The discovery session will help validate the business idea and review the pre-requisites for launch.
  • Business Plan – Help you create a documented success plan for your business.
  • Structure - Determine which business entity (LLC, S-Corp, C-Corp, Sole Proprietor, etc.) gives you the most benefit from both a liability and tax perspective.
  • Set Up - We'll help you file for entity formation, register with the State, obtain a Federal Tax ID number and more!
  • Accounting System - We'll help you choose the accounting system you need to understand how your business is running and prepare documents you need for fundraising or bank loans.

Eligibility Requirements

Once your business is up and running, you’ll need to determine if you meet the eligibility reuqirements for women-owned small businesses (WOSB).  According to the SBA.gov, “your business must:

  • Be a small business, as defined by the Federal Government
  • Be at least 51% owned and controlled by women who are U.S. citizens
  • Have women manage day-to-day operations and also make long-term decision”

Here are some of the steps you’ll need to take to get started with the Women-Owned Small Businesses (WOSB) program.

  1. Set up a profile at the gov website.
  2. Get self-certified or third-party certified. You should use the SBA.gov website.
    1. You can self-certify by answering questions and uploading documents.
    2. Third party certification can be provided by one of the following organizations:

     

    1. Once you’ve been certified, be sure to update your profile on Sam.gov. This shows contracting offers that your business is in the WOSB program.
    2. You’ll need to annually update your certification information to maintain your status in the program.

    There are additional opportunities for economically disadvantaged women-owned small businesses (EDWOSB).   We’ll review this more in a future article.

    If you need help starting a women-owned business, or preparing your business for federal contracting, contact Emerald Financial Partners.  We are a woman-owned business and have 38 years of practical business experience to share with you!
     

For more information, visit our Women-Owned Small Business page!

What You Need to Know About Government Contract Accounting

In Maryland, we are fortunate to have the geographic location that provides many government contractors with direct access to our Federal government and associated contracts. But, to be a successful government contractor, you will likely need to engage a knowledgeable accounting partner to assist you with Defense Contract Audit Agency (DCAA) compliance services, and help you follow specific guidelines, particularly as it relates to government contract accounting. Here are just a few items that your business needs to consider, when it comes to government contract accounting:

  • Quickbooks
    • Ensure that QuickBooks is set up and compliant with the Federal Acquisition Regulations (FAR)
    • Ongoing compliance checks and troubleshooting
  • A pre-award accounting system survey and post-award system audits
  • Staff training to maintain and resolve ongoing compliance issues
  • Compilation of financial statements for GAAP and DCAA compliance
  • Proper classification of direct and indirect costs
  • Audits and reviews of financial statements to meet government contract or outside party requirements
  • Government contract cost analysis
  • Preparation of DCAA audits
  • Ongoing consulting support to ensure competitively priced proposals and government contract accounting compliance

These are just a few of the items you need to consider.  The guidelines change and there is a lot of information and compliance issues your company will be responsible for.  Most of our clients find that these tasks are much easier to outsource and generally provide better compliance for audits.

Emerald Financial Partners has nearly 40 years of accounting experience and a large portion of our client base is government contractors, with a large portion of those clients focused on IT (Information Technology) contracts.

Contact Emerald Financial Partners today for a free business consultation!

What You Need to Know About Net Operating Loss Tax Changes

The 2018 tax reform made many good changes in the tax law for the small-business owner. But the changes to the net operating loss (NOL) deduction rules are not necessarily in the good-changes category. They are designed to put money in the IRS’s pocket.

OLD Net Operating Loss Rules

You have an NOL when your business deductions exceed your business income in a taxable year. Before tax reform, you could carry back the NOL to prior tax years and get refunds of taxes paid in those prior years.

Alternatively, you could have elected to waive the NOL carryback and instead carry forward the NOL to offset some or all of your taxable income in future tax years.

NEW Net Operating Loss Rules

Tax reform made two key changes to the Net Operating Loss rules:

  1. You can no longer carry back the NOL (except for certain qualified farming losses).
  2. Your NOL carryforward can offset only up to 80 percent of your taxable income in a tax year.

The changes put more money in the IRS’s pocket by

  • Eliminating your ability to get an immediate tax benefit from your NOL carryback, and
  • Delaying your ability to get tax benefits from future NOL carryforwards.

We are bringing the NOL rules to your attention in case you need to do some planning.

At Emerald Financial Partners, we have some strategies that may help you realize some immediate benefits from your business loss.

How Will Recent Tax Law Changes Affect Your 2018 Return?

Now is a good time to start preparing for the 2019 tax season so you won't be surprised with tax bills when the new year rolls around.  This year, it's even more important to review your situation with the new tax-law changes.  One thing you can do to ensure that your taxes will be in order is to schedule a consultation with Emerald Financial Partners now.  We offer Top Rated Local® tax services for individuals and businesses in Maryland.  Whether you’re interested in personal tax preparation or small business accounting and tax services, we can help!

Are You Withholding the Too Much or Too Little?

Earlier this year, IRS officials updated their withholding tables and issued a new Form W-4 for 2018 after passage of the Tax Cuts and Jobs Act last December. The act reduced employees' income tax rates, adjusted tax brackets and eliminated personal exemptions, among other changes.  The Treasury Department, which includes the IRS, "may make more significant changes to withholding in 2019 given its new discretion over the withholding structure provided in the Tax Cuts and Jobs Act," the GAO noted in a July report.

"It's important every year for people to review if they're having the right amount of tax withheld from their paychecks," acting IRS Commissioner David Kautter said in April. "This year, it's even more urgent for people to review their situation following the new tax-law changes."

"Many taxpayers have preferences about the tax refund that they will receive or the balance they will have to pay when they file their tax returns," the GAO report stated. "The tax withholding tables that Treasury and IRS update each year are an important tool that both employers and employees rely upon to form their expectations."

Will Your Income Change During the 4th Quarter?

Are you expecting a large year end bonus?  Are you changing jobs?  Any dramatic changes in income during the 4th quarter can impact your tax liability.  Schedule a consultation with the experts at Emerald Financial Partners today, so that you can prepare for your tax liability in April 2019.  It's better to be prepared than to be caught off guard!

Unreimbursed Employee Expenses

One of the biggest changes under the new tax law changes was the elimination of the deduction for unreimbursed employee business expenses, beginning with 2018 tax returns. This means that employees will no longer be able to offset their taxable income by common business expenses they may incur.  This can have a dramatic impact on your taxable income.  You may want to change your spending, talk with your employer, or plan for a larger taxable income.  The experts at Emerald Financial Partners can provide sound advice for your unique situation.

Don't Wait!

Don't wait until the New Year to evaluate your 2019 tax situation.  Schedule a consultation with the experts at Emerald Financial Partners.  

Emerald Financial Partners believes you should have a trusted partner, on call, to support you through the financial decisions that impact your life, your family, and your business. We provide a holistic approach to your tax, accounting, and financial needs.  Our team goes above and beyond to understand your unique needs and create strategies that will help you reach your goals.   Our services are structured to provide you unlimited access and on-call support to help you make better financial decisions, every day.

Qualitax Becomes Emerald Financial Partners

For Immediate Release

It’s an exciting time here at Qualitax and I wanted you to be among the first to know!  Over the next few weeks and months, you’ll notice that Qualitax will now become Emerald Financial Partners.

For the past 38 years, you’ve come to expect the best tax and accounting service in the area.  That’s not changing at all.  In fact, what we heard from many of our customers is that you want more than just a tax advisor.  So, our new brand reflects our ability to offer a more holistic approach to all of your tax, accounting, and financial needs.  Our new mission is also a reflection of those goals:

Emerald Financial Partners believes you should have a trusted partner, on call, to support you through the financial decisions that impact your life, your family, and your business. Our team goes above and beyond to understand your unique needs and create strategies that will help you reach your goals.   Our services are structured to provide you unlimited access and on-call support to help you make better financial decisions, every day.

This rebranding initiative reflects countless hours of thoughtful discussion about how we can provide a wider array of meaningful services to you, our valued clients.   For our business clients, we are expanding our Accounting & Remote CFO services.  Be sure to download a copy of our Business Services Matrix from our website to see the full suite of business services we now offer.   For our expanding base of Millennial clientele, I encourage you to check out our new Personal Success Package.  It’s a smart way to make better financial decisions, every day.

Our location and telephone will remain the same, so you will still reach us as you always have.  We will be getting new email addresses, but the old email will still work too!  Our old website will remain for the next year or so, but I encourage you to visit our new website at:  www.EmeraldFinancialPartners.com

We’re incredibly proud of the work that we do and thankful for the employees, clients, and partnerships that have accompanied us in our growth.   As always, please don’t hesitate to reach out if you have questions.

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